<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-2499
CORNERSTONE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 77-0439862
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
432 Westridge Drive, Watsonville, California 95076
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (831) 724-1921
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 11, 2000: 16,821,760 - Common Units
i
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CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
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<S> <C>
Part I. Financial Information
Item 1
Financial Statements
Cornerstone Propane Partners, L.P.
Consolidated Balance Sheets as of March 31, 2000 and 1999, and June 30, 1999 1
Consolidated Statements of Operations for the Three Months and Nine Months ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2000 and 1999 3
Consolidated Statements of Comprehensive Net Income for the Nine Months ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations of Cornerstone
Propane Partners, L.P. 10
Item 3
Quantitative and Qualitative Disclosures About Market Risks 17
Part II. Other Information
Item 6
Exhibits and Reports on Form 8-K 18
Signature 19
</TABLE>
ii
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
March 31,
---------------------------------- June 30,
2000 1999 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 14,267 $ 11,717 $ 9,229
Trade receivables, net 62,107 48,218 29,097
Inventories 58,862 36,019 42,629
Prepaid expenses 2,167 2,190 5,444
Other current assets 5,172 10,859 4,690
---------------- --------------- ---------------
Total current assets 142,575 109,003 91,089
Property, plant, and equipment, net 348,676 328,303 336,820
Goodwill, net 322,580 309,732 314,735
Other intangibles, net 34,465 33,394 31,612
Due from related party - - 3,020
Other assets 5,023 4,198 3,968
---------------- --------------- ---------------
Total assets $853,319 $ 784,630 $ 781,244
================ =============== ===============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Current portion of long-term debt $ 10,312 $ 3,214 $ 10,456
Trade accounts payable 62,557 44,735 33,182
Accrued expenses 27,833 29,933 27,425
---------------- --------------- ---------------
Total current liabilities 100,702 77,882 71,063
Long-term debt, less current portion 443,153 360,812 388,484
Due to related party 1,347 689 -
Other noncurrent liabilities 5,942 9,096 6,170
---------------- --------------- ---------------
Total liabilities 551,144 448,479 465,717
---------------- --------------- ---------------
Commitments and contingencies - - -
Partners' capital
Common Unitholders 203,092 237,113 220,077
Subordinated Unitholders 92,867 92,140 88,965
General partners 6,216 6,898 6,485
---------------- --------------- ---------------
Total partners' capital 302,175 336,151 315,527
---------------- --------------- ---------------
Total liabilities and partners' capital $853,319 $ 784,630 $ 781,244
================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
March 31, March 31,
---------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 1,109,585 $ 338,536 $ 2,595,421 $ 732,579
Cost of Sales 1,030,613 268,189 2,417,044 589,273
---------------- ---------------- ---------------- ----------------
Gross profit 78,972 70,347 178,377 143,306
---------------- ---------------- ---------------- ----------------
Expenses:
Operating, general, and
administrative 39,190 34,406 109,280 90,372
Depreciation and amortization 9,767 7,848 27,125 18,657
---------------- ---------------- ---------------- ----------------
48,957 42,254 136,405 109,029
---------------- ---------------- ---------------- ----------------
Operating income 30,015 28,093 41,972 34,277
Interest expense 9,435 6,863 27,504 17,788
---------------- ---------------- ---------------- ----------------
Income before provision for
income taxes 20,580 21,230 14,468 16,489
Provision for income taxes 48 - 144 67
---------------- ---------------- ---------------- ----------------
Net income $ 20,532 $ 21,230 $ 14,324 $ 16,422
================ ================ ================ ================
General partners' interest in
net income $ 411 $ 425 $ 286 $ 328
================ ================ ================ ================
Limited partners' interest in
net income $ 20,121 $ 20,805 $ 14,038 $ 16,094
================ ================ ================ ================
Net income per unit $ 0.86 $ 0.89 $ 0.60 $ 0.76
================ ================ ================ ================
Weighted average number
of units outstanding 23,417 23,378 23,397 21,280
================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,324 $ 16,422
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 27,125 18,657
(Gain)/Loss on sale of assets (438) 720
Changes in assets and liabilities, net of effect of acquisitions:
Trade receivables-net (32,690) (21,223)
Inventories (13,827) 7,091
Prepaid expenses and other current assets 2,859 (7,183)
Trade accounts payable and accrued expenses 30,073 (4,298)
--------------- ---------------
Net cash from operating activities 27,426 10,186
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment, net (14,025) (13,724)
Acquisitions, net of cash received (30,227) (120,150)
Other investments (1,270) (148)
--------------- ---------------
Net cash from investing activities (45,522) (134,022)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in Working Capital Facility (8,100) 24,730
Payments on purchase obligations (3,660) (13,215)
Proceeds from Senior Note Offerings 60,000 85,000
Payments for debt financing (1,700) (662)
Proceeds from additional unit offering - 58,900
Payments for additional unit offering - (5,058)
Advances from related parties 4,367 -
General Partners' contributions, net - 379
Partnership distributions (27,773) (23,887)
--------------- ---------------
Net cash from financing activities 23,134 126,187
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,038 2,351
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,229 9,366
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,267 $ 11,717
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 24,591 $ 20,977
=============== ===============
NON-CASH INVESTING & FINANCING ACTIVITIES:
Assets acquired in exchange for Common Units $ - $ 8,805
=============== ===============
Assets acquired in exchange for debt $ 6,057 $ 30,041
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE NET INCOME
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net income $ 14,324 $ 16,422
Other comprehensive income:
Foreign currency adjustments (215) -
------------- -------------
Comprehensive net income $ 14,109 $ 16,422
============= =============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
Reconciliation of accumulated other comprehensive income March 31,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Balance, beginning of period $ (229) $ -
Current period change (215) -
------------- -------------
Balance, end of period $ (444) $ -
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Dollars in thousands, except unit data)
(Unaudited)
1. BASIS OF PRESENTATION
These consolidated financial statements include the accounts of Cornerstone
Propane Partners, L.P. ("Cornerstone Partners") and its subsidiary,
Cornerstone Propane, L.P. (the "Operating Partnership"), and the Operating
Partnership's corporate subsidiaries, Cornerstone Sales and Service
Corporation ("Sales and Service"), Cornerstone Holding Corporation
("Holding"), Flame, Inc. ("Flame"), Coast Energy Global Services, Inc.
("Global"), and Coast Energy Canada, Inc. ("Canada"). All material
intercompany balances and transactions have been eliminated. Cornerstone
Partners, the Operating Partnership, Sales and Service, Holding, Flame,
Global, and Canada are collectively referred to as the "Partnership".
The accompanying interim consolidated financial statements of the Partnership
are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of such consolidated financial statements
have been reflected in the interim periods presented. Such adjustments
consisted only of normal recurring items. The Partnership's business is
seasonal and, accordingly, interim results are not indicative of results for
a full year. The significant accounting policies and certain financial
information, which are normally included in financial statements prepared in
accordance with generally, accepted accounting principles, but which are not
required for interim reporting purposes, have been condensed or omitted. The
accompanying consolidated financial statements of the Partnership should be
read in conjunction with the consolidated financial statements and related
notes included in the Partnership's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999.
2. DISTRIBUTIONS OF AVAILABLE CASH
The Partnership will make distributions to its partners with respect to each
fiscal quarter of the Partnership within 45 days after the end of each fiscal
quarter in an aggregate amount equal to its Available Cash for such quarter.
The Partnership will distribute 100% of its Available Cash (98% to
Unitholders and 2% to the General Partners) until the Minimum Quarterly
Distribution ("MQD") of $.54 per unit for such quarter has been met. The MQD
will be subject to the payment of incentive distributions in the event
Available Cash exceeds the MQD of $.54 on all units. During the Subordination
Period, to the extent there is sufficient Available Cash, the holders of
Common Units have the right to receive the MQD, plus any arrearages, prior to
the distribution of Available Cash to holders of Subordinated Units.
Subordinated Units do not accrue arrearages with respect to distributions for
any quarter.
On April 25, 2000, the MQD for the three month period from January 1, 2000 to
March 31, 2000 was declared in the amount of $9,270, representing in the
aggregate, distributions to the Common Unitholders and General Partners at
$.54 per common unit. This distribution will be paid on May 15, 2000. No
distributions have been declared and subsequently paid on the Subordinated
Units for the period from October 1, 1997 to March 31, 2000.
5
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Dollars in thousands, except unit data)
(Unaudited)
3. ACQUISITIONS
During the three months ended March 31, 2000, the Partnership consummated one
acquisition for a total consideration of less than $5.0 million.
During the three months ended March 31, 1999, the Partnership consummated
four acquisitions for a total consideration of $9.4 million, of which
approximately $9.2 million was paid in cash and assumed debt, and $0.2
million was in the form of Common Units of the Partnership.
On December 11, 1998, the Partnership acquired Propane Continental, Inc.
("PCI"). Due to the significance of this acquisition, the following
information is provided to present proforma results as if PCI had been
acquired on July 1, 1998.
<TABLE>
<CAPTION>
Proforma
Nine months Ended
March 31, 1999
--------------
<S> <C>
Revenue $795,873
Net income 12,526
Net income per unit .52
</TABLE>
4. NET INCOME PER UNIT
Net income per unit is computed by dividing net income, after considering the
General Partners' 2% interest, by the weighted average number of Common and
Subordinated Units outstanding during the period.
5. SEGMENT AND RELATED INFORMATION
For the purpose of providing segment information, the Partnership's two
principal business segments are its retail and Coast Energy Group ("CEG")
operations. The retail segment includes propane sales, principally to
end-users; repair and maintenance of propane heating systems and appliances;
and the sale of propane-related supplies, appliances, and other equipment.
These transactions are accounted for as one business segment internally and
share the same customer base. CEG provides supply, marketing, and
distribution services to other resellers of propane and end-users. Principal
products are propane, other natural gas liquids, crude oil, and natural gas.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the annual report on Form
10-K. Intra-company transactions between segments are recorded approximately
at market value at the transaction date.
6
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Dollars in thousands, except unit data)
(Unaudited)
5. SEGMENT AND RELATED INFORMATION (CONT.)
The segments are evaluated internally using earnings before interest, taxes,
depreciation, and amortization ("EBITDA"). Depreciation, amortization,
interest and some operating, general, and administrative expenses are not
specifically tracked by business segment, and are therefore included in the
"Other" category in the following tables:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
- -----------------------------------------------------------------------------------------------------------------------
Retail CEG Other Total
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 133,132 $ 976,453 $ - $ 1,109,585
Cost of sales 72,023 958,590 - 1,030,613
----------------- ----------------- ----------------- -----------------
Gross profit 61,109 17,863 - 78,972
Operating, general, and
administrative expenses 28,728 8,303 2,159 39,190
----------------- ----------------- ----------------- -----------------
EBITDA 32,381 9,560 (2,159) 39,782
Non-allocated expenses - - 19,250 19,250
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 32,381 $ 9,560 $ (21,409) $ 20,532
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
Retail CEG Other Total
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 105,449 $ 233,087 $ - $ 338,536
Cost of sales 44,216 223,973 - 268,189
----------------- ----------------- ----------------- -----------------
Gross profit 61,233 9,114 - 70,347
Operating, general, and
administrative expenses 26,238 4,900 3,268 34,406
----------------- ----------------- ----------------- -----------------
EBITDA 34,995 4,214 (3,268) 35,941
Non-allocated expenses - - 14,711 14,711
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 34,995 $ 4,214 $ (17,979) $ 21,230
================= ================= ================= =================
</TABLE>
7
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Dollars in thousands, except unit data)
(Unaudited)
5. SEGMENT AND RELATED INFORMATION (CONT.)
<TABLE>
<CAPTION>
Nine Months Ended March 31, 2000
- -----------------------------------------------------------------------------------------------------------------------
Retail CEG Other Total
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 284,442 $ 2,310,979 $ - $ 2,595,421
Cost of sales 142,735 2,274,309 - 2,417,044
----------------- ----------------- ----------------- -----------------
Gross profit 141,707 36,670 - 178,377
Operating, general, and
administrative expenses 79,467 21,541 8,272 109,280
----------------- ----------------- ----------------- -----------------
EBITDA 62,240 15,129 (8,272) 69,097
Non-allocated expenses - - 54,773 54,773
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 62,240 $ 15,129 $ (63,045) $ 14,324
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
Retail CEG Other Total
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 216,989 $ 515,590 $ - $ 732,579
Cost of sales 92,127 497,146 - 589,273
----------------- ----------------- ----------------- -----------------
Gross profit 124,862 18,444 - 143,306
Operating, general, and
administrative expenses 69,443 11,825 9,104 90,372
----------------- ----------------- ----------------- -----------------
EBITDA 55,419 6,619 (9,104) 52,934
Non-allocated expenses - - 36,512 36,512
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 55,419 $ 6,619 $ (45,616) $ 16,422
================= ================= ================= =================
</TABLE>
8
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Dollars in thousands, except unit data)
(Unaudited)
5. SEGMENT AND RELATED INFORMATION (CONT.)
<TABLE>
<CAPTION>
As of March 31, 2000
- -----------------------------------------------------------------------------------------------------------------
Retail CEG Other Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Identifiable assets $ 56,217 $ 61,292 $ 3,460 $ 120,969
General corporate assets - - 732,350 732,350
---------------- ---------------- ---------------- ----------------
Total assets $ 56,217 $ 61,292 $ 735,810 $ 853,319
================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
As of March 31,1999
- -----------------------------------------------------------------------------------------------------------------
Retail CEG Other Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Identifiable assets $ 37,354 $ 39,735 $ 7,148 $ 84,237
General corporate assets - - 700,393 700,393
---------------- ---------------- ---------------- ----------------
Total assets $ 37,354 $ 39,735 $ 707,541 $ 784,630
================ ================ ================ ================
</TABLE>
EBITDA consists of net income before interest, income taxes, depreciation and
amortization. EBITDA should not be considered as an alternative to net income
(as an indicator of operating performance) or as an alternative to cash flow,
and it is not a measure of performance or financial condition under generally
accepted accounting principles, but it provides additional information for
evaluating the Partnership's ability to distribute the Minimum Quarterly
Distribution and to service and incur indebtedness. Cash flows in accordance
with generally accepted accounting principles consist of cash flows from
operating, investing and financing activities; cash flows from operating
activities reflect net income (including charges for interest and income
taxes, which are not reflected in EBITDA), adjusted for noncash charges or
income (which are reflected in EBITDA) and changes in operating assets and
liabilities (which are not reflected in EBITDA). Further, cash flows from
investing and financing activities are not included in EBITDA.
9
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the historical financial condition and results of
operations for the Partnership should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Quarterly Report on Form 10-Q.
GENERAL
The Partnership is a Delaware limited partnership initially formed to own and
operate the propane business and assets of SYN Inc., Empire Energy
Corporation and CGI Holdings, Inc. The Partnership's management believes that
it is the fourth largest retail marketer of propane in the United States,
serving more than 460,000 residential, commercial, industrial and
agricultural customers from approximately 300 customer service centers in 34
states. The Partnership's two principal business segments are its retail and
Coast Energy Group ("CEG") operations. The retail segment includes propane
sales, principally to end-users; repair and maintenance of propane heating
systems and appliances; and the sale of propane-related supplies, appliances
and other equipment. CEG provides supply, marketing, and distribution
services to other resellers of propane and end-users. Principal products are
propane, other natural gas liquids, crude oil, and natural gas.
Because a substantial portion of the Partnership's retail propane is used in
the weather-sensitive residential markets, the temperatures in the
Partnership's area of operations, particularly during the six-month peak
heating season (October through March), have a significant effect on the
financial performance of the Partnership. In any given area,
warmer-than-normal temperatures will tend to result in reduced propane use,
while sustained colder-than-normal temperatures will tend to result in
greater propane use. Therefore, information on normal temperatures is used by
the Partnership in understanding how historical results of operations are
affected by temperatures that are colder or warmer than normal and in
preparing forecasts of future operations, which are based on the assumption
that normal weather will prevail in each of the Partnership's regions.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. For example, sales to residential customers
ordinarily generate higher margins than sales to other customer groups, such
as commercial or agricultural customers. In addition, gross profit margins
vary by geographic region. Accordingly, profit margins could vary
significantly from year to year in a period of identical sales volumes.
10
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF HISTORICAL RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED MARCH 31
The following discussion compares the results of operations and other data of
the Partnership for the three-month period ended March 31, 2000, to the
three-month period ended March 31, 1999.
VOLUME. During the three months ended March 31, 2000, the Partnership sold
104.1 million retail propane gallons, a decrease of 3.7 million gallons or
3.4% from the 107.8 million retail propane gallons sold during the three
months ended March 31, 1999. Retail sales volumes were adversely impacted for
the quarter ended March 31, 2000 by weather patterns and temperatures that
were significantly warmer than normal and warmer than prior year conditions,
partially offset by acquisitions and internal growth. Acquisitions of propane
businesses since March 31, 1999 accounted for 6.2 million retail gallons sold
during the three months ended March 31, 2000.
Based on the average number of heating degree days in the markets served by
the Partnership, for the January to March 2000 period, temperatures were
approximately 16.5% and 7.1% warmer than normal and last year, respectively.
While this indicator generally measures the impact of temperatures on the
Partnership's business, other factors such as geographic mix, magnitude and
duration of temperature and weather conditions can also impact sales volumes.
Overall mild weather conditions had an adverse impact on the Partnership's
retail sales volume (excluding acquisitions) and earnings compared to normal
levels for the three months ended March 31, 2000. The three months ended
March 31 historically account for approximately 40% of the Partnership's
annual earnings before interest, taxes, depreciation and amortization
("EBITDA").
REVENUES. Revenues increased by $771.1 million or 227.8% to $1,109.6 million
for the three months ended March 31, 2000, as compared to $338.5 million for
the three months ended March 31, 1999. This increase was primarily
attributable to an increase in CEG revenues of $743.4 million or 318.9% to
$976.5 million for the three months ended March 31, 2000, as compared to
$233.1 million for the three months ended March 31, 1999. This increase was
due primarily to CEG base business growth and higher product costs, partially
offset by warmer weather conditions. The revenues for the retail business
increased by $27.7 million or 26.3% to $133.1 million for the three months
ended March 31, 2000, as compared to $105.4 million for the three months
ended March 31, 1999. This reflects primarily the increase in propane selling
prices in response to product cost increases noted below, combined with
increased revenue from business acquisitions, offset by the decrease in
weather related sales volumes described above.
COST OF PRODUCT SOLD. Cost of product sold increased by $762.4 million or
284.3% to $1,030.6 million for the three months ended March 31, 2000, as
compared to $268.2 million for the three months ended March 31, 1999. The
increase in cost of product sold was primarily due to the increased CEG sales
described above, combined with higher propane cost per gallon. As a
percentage of revenues, cost of product sold increased to 92.9% for the three
months ended March 31, 2000, as compared to 79.2% for the three months ended
March 31, 1999, due primarily to the increase in CEG's activities.
11
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS PROFIT. Gross profit increased $8.7 million or 12.4% to $79.0 million
for the three months ended March 31, 2000, compared to $70.3 million for the
three months ended March 31, 1999. Gross profit on retail propane decreased
$0.1 million or 0.2% to $61.1 million for the three months ended March 31,
2000, compared to $61.2 million for the three months ended March 31, 1999.
Retail gross margin per gallon for the three months ended March 31, 2000 was
3.4% better than last year. This was attributable to increasing propane
margins in selected retail markets and increased revenues from additional
services. CEG's gross profit increased $8.8 million or 96.7% to $17.9 million
for the three months ended March 31, 2000, compared to $9.1 million for the
three months ended March 31, 1999 due to base business growth. As a
percentage of revenues, gross profit decreased to 7.1% for the three months
ended March 31, 2000, as compared to 20.8% for the three months ended March
31, 1999. This is due to a higher mix of CEG business, which has a lower
gross margin as a percent of sales. Gross profit increases from retail
businesses acquired since March 31, 1999 was $3.7 million for the three
months ended March 31, 2000. Gross profit increases from businesses acquired
in the CEG division was $2.0 million for the three months ended March 31,
2000.
CASH OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Cash operating, general
and administrative expenses increased by $4.8 million or 14.0% to $39.2
million for the three months ended March 31, 2000, as compared to $34.4
million for the three months ended March 31, 1999. CEG's operating expenses
increased $1.7 million due to increased transaction volumes from internal
growth. Additionally, approximately $3.3 million of the total increase was
attributable to increases in operating expenses related to the acquisition of
new businesses, which was offset to some extent by expense savings at
existing locations. As a percentage of revenues, operating, general and
administrative expenses decreased to 3.5% for the three months ended March
31, 2000, as compared to 10.2% for the three months ended March 31, 1999, due
primarily to an increase in CEG revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $2.0
million or 25.6% to $9.8 million for the three months ended March 31, 2000,
as compared to $7.8 million for the three months ended March 31, 1999. This
increase was primarily due to the additional amortization and depreciation
expense associated with newly acquired businesses.
OPERATING INCOME. Operating income increased $1.9 million or 6.8% to $30.0
million for the three months ended March 31, 2000, as compared to $28.1
million for the three months ended March 31, 1999. This increase was
primarily the result of the increased gross profit described above, partially
offset by the increased operating, general and administrative expenses also
described above.
INTEREST EXPENSE. Interest expense increased by $2.5 million or 36.2% to
$9.4 million for the three months ended March 31, 2000, as compared to $6.9
million for the three months ended March 31, 1999. The increase was due
principally to borrowings related to acquisitions and to a lesser extent,
higher borrowings as a result of higher product costs and higher interest
rates.
12
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF HISTORICAL RESULTS OF OPERATIONS - NINE MONTH PERIOD ENDED MARCH 31
The following discussion compares the results of operations and other data of
the Partnership for the nine month period ended March 31, 2000, to the nine
month period ended March 31, 1999.
VOLUME. During the nine months ended March 31, 2000, the Partnership sold
237.0 million retail propane gallons, an increase of 16.2 million gallons or
7.3% from the 220.8 million retail propane gallons sold during the nine
months ended March 31, 1999. Retail sales volumes for the nine months ended
March 31, 2000 were adversely impacted by an unseasonably mild fall and early
winter heating season. Acquisitions of new propane businesses since March 31,
1999 accounted for 21.3 million retail gallons sold during the nine months
ended March 31, 2000.
Based on the average number of heating degree days in the markets served by
the Partnership, for March 2000, year to date temperatures were approximately
15.3% and 5.0% warmer than normal and last year, respectively. While this
indicator generally measures the impact of temperatures on the Partnership's
business, other factors such as geographic mix, magnitude and duration of
temperature and weather conditions can also impact sales volumes. The overall
impact of weather had an adverse impact on the Partnership's retail sales
volume (excluding acquisitions) and earnings compared to normal levels.
REVENUES. Revenues increased by $1,862.8 million or 254.3% to $2,595.4
million for the nine months ended March 31, 2000, as compared to $732.6
million for the nine months ended March 31, 1999. CEG's revenues increased
$1,795.4 million or 348.2% to $2,311.0 million for the nine months ended
March 31, 2000, as compared to $515.6 million for the nine months ended March
31, 1999. This increase was due to acquisitions, base business growth, and
higher product costs. The revenues for the retail business increased by $67.4
million or 31.1% to $284.4 million for the nine months ended March 31, 2000,
as compared to $217.0 million for the nine months ended March 31, 1999. This
increase was due primarily to acquisitions and partially due to increased
product selling prices, offset by mild weather conditions which adversely
impacted retail sales volumes as described above.
COST OF PRODUCT SOLD. Cost of product sold increased by $1,827.7 million or
310.1% to $2,417.0 million for the nine months ended March 31, 2000, as
compared to $589.3 million for the nine months ended March 31, 1999. The
increase in cost of product sold was primarily related to acquisitions, CEG
base business growth, and partially due to increases in the cost of product.
As a percentage of revenues, cost of product sold increased to 93.1% for the
nine months ended March 31, 2000, as compared to 80.4% for the nine months
ended March 31, 1999, due primarily to the increase in CEG's activities.
13
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS PROFIT. Gross profit increased $35.1 million or 24.5% to $178.4
million for the nine months ended March 31, 2000, compared to $143.3 million
for the nine months ended March 31, 1999. Gross profit on retail propane
increased $16.8 million or 13.5% to $141.7 million for the nine months ended
March 31, 2000, compared to $124.9 million for the nine months ended March
31, 1999. Retail gross margins per gallon for the nine months ended March 31,
2000 were 5.7% better than last year. This was attributable to increasing
propane margins in selected retail markets and increased revenues from
additional services. CEG's gross profit increased $18.3 million or 99.5% to
$36.7 million for the nine months ended March 31, 2000, compared to $18.4
million for the nine months ended March 31, 1999 due to acquisitions and base
business growth. As a percentage of revenues, gross profit decreased to 6.9%
for the nine months ended March 31, 2000, as compared to 19.6% for the nine
months ended March 31, 1999. This is due to a higher mix of CEG business,
which has a lower gross margin as a percent of sales. Gross profit increases
from retail businesses acquired since July 1, 1999 was $16.1 million for the
nine months ended March 31, 2000. Gross profit increases from businesses
acquired in the CEG division was $11.4 million for the nine months ended
March 31, 2000.
CASH OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Cash operating, general
and administrative expenses increased by $18.9 million or 20.9% to $109.3
million for the nine months ended March 31, 2000, as compared to $90.4
million for the nine months ended March 31, 1999. CEG's operating expenses
increased $7.2 million due to increased transaction volumes from internal
growth. Approximately $17.5 million of the total increase was attributable to
increases in operating expenses relating to the acquisition of new
businesses, which was offset by expense savings at existing locations. As a
percentage of revenues, operating, general and administrative expenses
decreased to 4.2% for the nine months ended March 31, 2000, as compared to
12.3% for the nine months ended March 31, 1999, due primarily to an increase
in CEG revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $8.4
million or 44.9% to $27.1 million for the nine months ended March 31, 2000,
as compared to $18.7 million for the nine months ended March 31, 1999. This
increase was primarily due to the additional amortization and depreciation
expense associated with newly acquired businesses.
OPERATING INCOME. Operating income increased $7.7 million or 22.4% to $42.0
million for the nine months ended March 31, 2000, as compared to $34.3
million for the nine months ended March 31, 1999. This increase was primarily
the result of the increased gross profit described above, partially offset by
the increased operating, general and administrative expenses also described
above.
INTEREST EXPENSE. Interest expense increased by $9.7 million or 54.5% to
$27.5 million for the nine months ended March 31, 2000, as compared to $17.8
million for the nine months ended March 31, 1999. The increase was due to
higher borrowings related to business acquisitions and higher product costs,
as well as higher interest rates.
14
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Cash provided by operating activities during the nine
month period ended March 31, 2000 was $27.4 million. Cash flow from
operations included net income of $14.3 million and non-cash charges of $26.7
million for the period, comprised of depreciation and amortization expense
and the gain on sale of assets. The impact of working capital changes
decreased cash flow by approximately $13.6 million.
INVESTING ACTIVITIES. Cash used in investment activities for the nine month
period ended March 31, 2000 totaled $45.5 million, which was principally
related to Partnership acquisitions and purchases of plant and equipment.
FINANCING ACTIVITIES. Cash provided by financing activities was $23.1 million
for the nine months ended March 31, 2000, which reflects the $11.8 million in
payments on the partnership's working capital facility and purchase
obligations offset by net proceeds from placement of senior notes of $58.3
million. Cash distributions paid to Unitholders for the period totaled $27.8
million and advances from related parties totaled $4.4 million.
FINANCING AND SOURCES OF LIQUIDITY
The Partnership's obligations under its Senior Note Agreements and Bank
Credit Agreement are secured by a security interest in the Operating
Partnership's inventory, accounts receivable and certain customer storage
tanks. The Senior Note and Bank Credit Agreements contain various terms and
covenants including financial ratio covenants with respect to debt and
interest coverage and limitations, among others, on the ability of the
Partnership and its subsidiaries to incur additional indebtedness, create
liens, make investments and loans, and enter into mergers, consolidations or
sales of all or substantially all assets. Generally, so long as no default
exists or would result, the Partnership is permitted to make distributions
during each fiscal quarter in an amount not in excess of Available Cash with
respect to the immediately preceding quarter. The Partnership was in
compliance with all terms and covenants at March 31, 2000.
15
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, relating to the Partnership's future business expectations and
predictions and financial condition and results of operations. These
forward-looking statements involve certain risks and uncertainties. The
Partnership's actual future performance will be affected by a number of
factors, risks, and uncertainties, including, without limitation: the impact
of weather conditions on the demand for propane; fluctuations in the unit
cost of propane; the ability of the Partnership to compete with other
suppliers of propane and other energy sources; the ability of the Partnership
to retain and acquire customers; the Partnership's ability to implement its
expansion strategy and to integrate acquired businesses successfully; the
impact of energy efficiency and technology advances on the demand for
propane; the ability of management to continue to control expenses; the
impact of regulatory developments on the Partnership's business; and the
impact of legal proceedings on the Partnership's business. All subsequent
written and oral forward-looking statements attributable to the Partnership
or persons acting on its behalf are expressly qualified in their entirety by
such cautionary statements. The Partnership undertakes no obligation to
publicly release any revision to these forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
16
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has limited exposure to technology risk, credit risk,
interest rate risk, foreign currency risk, and commodity price risk. In the
normal course of business, the Partnership employs various strategies and
procedures to manage its exposure to changes in interest rates, fluctuations
in the value of foreign currencies, and changes in commodity prices. The
Partnership's exposure to any of these risks is not materially different than
as disclosed in the Partnership's Annual Report on 10-K for the year ended
June 30, 1999.
17
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
An exhibit index is attached at the end of this report and is
incorporated herein by reference.
b) Reports on Form 8-K:
None
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cornerstone Propane Partners, L.P.
(Registrant)
By: Cornerstone Propane GP, Inc.
as Managing General Partner
By: /s/ Ronald J. Goedde
------------------------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
By: /s/ Richard D. Nye
------------------------------------
Name: Richard D. Nye
Title: Vice President Finance
& Administration
Date: May 11, 2000
19
<PAGE>
EXHIBIT INDEX
Exhibits Description
27 Financial Data Schedule
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 14,267
<SECURITIES> 0
<RECEIVABLES> 65,003
<ALLOWANCES> 2,896
<INVENTORY> 58,862
<CURRENT-ASSETS> 142,575
<PP&E> 393,818
<DEPRECIATION> 45,142
<TOTAL-ASSETS> 853,319
<CURRENT-LIABILITIES> 100,702
<BONDS> 410,000
0
0
<COMMON> 0
<OTHER-SE> 302,175
<TOTAL-LIABILITY-AND-EQUITY> 853,319
<SALES> 2,595,421
<TOTAL-REVENUES> 2,595,421
<CGS> 2,417,044
<TOTAL-COSTS> 2,417,044
<OTHER-EXPENSES> 136,405
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,504
<INCOME-PRETAX> 14,468
<INCOME-TAX> 144
<INCOME-CONTINUING> 14,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,324
<EPS-BASIC> .60
<EPS-DILUTED> 0
</TABLE>
